The optimal plant size depends on
a. whether the firm confronts diminishing returns on its fixed factors of production.
b. the output the firm expects to produce.
c. whether the plant uses capital-intensive or labor-intensive production techniques.
d. the preferences of the individual firm owners.
The Samaritan’s dilemma describes the problem that exists when transfer programs,
designed to help the poor, encourage choices that can promote or perpetuate
a. poverty.
b. healthier lifestyles.
c. reduced birth rates.
d. increased life expectancy.
Public choice analysis
a. assumes individuals in the public sector act in their own self-interests.
b. assumes individuals seek to serve the public interest rather than their own personal
interests.
c. is the study of decision making in the formation and operation of private
organizations.
d. assumes the government is a corrective device that takes the necessary action to
offset economic inefficiency arising from market failure.
Which of the following will most directly determine the market price of a business or
physical asset?
a. cost of the asset
b. expected future net earnings derived from the asset
c. book value (original purchase price minus depreciation) of the asset
d. age of the asset
Isabella decides to buy a dress that Olivia has for sale; they agree on a price of $20.
Which of the following best describes who gains and who loses from the transaction?
a. If the dress originally costs more than $20, Isabella gains and Olivia loses.
b. If the dress originally costs less than $20, Olivia gains and Isabella loses.
c. Both parties expect to gain from this transaction.
d. If Olivia gains from the transaction, Isabella must lose an equal amount.
A market transaction causes an externality if someone
a. directly involved in the transaction receives uncompensated benefits or costs from it.
b. not directly involved in the transaction receives uncompensated benefits or costs
from it.
c. directly involved in the transaction seeks legal assistance to ensure that the
transaction is carried out.
d. not directly involved in the transaction interferes in it by imposing regulations or
product standards.
During the last four decades, the share of health-care expenditures paid for by third
parties (either the government or insurance companies)
a. has remained relatively constant.
b. fell from approximately 60 percent in 1960 to 30 percent in 2007.
c. increased from approximately 45 percent in 1960 to over 85 percent in 2007.
d. declined during the 15 years following the passage of Medicare but has been
increasing since 1980.
The procedure used to calculate the present value of future income is called
a. indirect production.
b. investment tax shelter planning.
c. discounting.
d. amortizing.
When the marginal revenue product of an input is less than its price, the
a. producer should expand the use of that input.
b. price of the input will automatically rise in a free market.
c. producer should reduce the use of that input.
d. marginal physical product of that input must be below its average physical product.
The argument that import restrictions save jobs and promote prosperity fails to
recognize that
a. there are no secondary effects of import restrictions.
b. import restrictions will lower prices in the protected industries.
c. import restrictions cannot create jobs in any industries.
d. U.S. imports provide people in other countries with the purchasing power required
for the purchase of U.S. exports.
Which of the following about Social Security is true?
a. Labor participation tends to increase as spousal earnings increase.
b. Social Security works to the disadvantage of low-wage workers due to their shorter
life expectancy.
c. Low-wage workers derive a higher rate of return from their Social Security taxes than
high-wage workers.
d. High-wage workers generally begin full-time work at younger ages than low-wage
workers.
During the last four decades, the composition of federal spending has
a. been virtually unchanged, but federal spending as a share of GDP has declined
substantially.
b. been virtually unchanged, but federal spending as a share of GDP has increased
sharply.
c. shifted away from national defense and toward spending on income transfers and
health care.
d. shifted away from health care and income transfers and toward spending on national
defense.
According to the Keynesian view, an unanticipated reduction in spending will
a. increase the demand for goods and services.
b. raise business inventories and lead to a decline in output.
c. lead to lower interest rates, which will stimulate aggregate demand and keep the
economy at full employment.
d. lead to a lower price level, which will quickly guide the economy to full-employment
equilibrium.
The adoption of modern technologies and business methods have the possibility to
improve economic performance in a nation with low per capita income and low growth,
but only if
a. its natural resources are sufficient.
b. its workers become educated rapidly enough.
c. it improves its institutions, making them sound enough to attract capital and
entrepreneurial activity.
d. its government has enough skilled planners to properly deploy new capital.
To the extent that unions can transfer profits from unionized employers to union
workers, they will
a. reduce the incentive of unionized employers to invest in fixed capital and research.
b. increase employment in the unionized sector.
c. reduce the incentive of nonunion firms to invest and expand their output.
d. increase the productivity of labor in the long run.
Because each oligopolist cares about its own profit rather than the collective profit of
all the oligopolists together,
a. they are unable to maintain the same degree of monopoly power achieved by a
monopolist.
b. each firm’s profit always ends up being zero.
c. competitive pressures are absent from the market.
d. it will be easier to maintain collusive agreements.
If the board of regents of a major state university system plans to raise tuition in order
to increase revenues, the regents must believe student demand is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. perfectly elastic.
Which of the following best explains why making automobiles completely safe is not
efficient?
a. After some level of safety is reached, making cars even safer will not be worth the
additional cost.
b. Because human life is priceless, automobile safety generally doesn’t matter.
c. The benefit from additional automobile safety will generally rise as automobiles are
made safer, more than offsetting the opportunity cost involved.
d. Economic efficiency suggests that automobiles should be made as safe as humanly
possible.
Trade restrictions that limit the sale of low-price foreign goods in the U.S. market
a. increase the real income of Americans.
b. benefit domestic producers in the protected industries at the expense of consumers
and domestic producers in export industries.
c. help channel more of our resources into producing goods for which we are a low-cost
producer.
d. reduce unemployment and increase the productivity of American workers.
Suppose the U.S. government banned the sale and production of cigarettes. Which of
the following would be most likely to occur?
a. No one would smoke anymore.
b. The amount of violence involved in the buying and selling of cigarettes would
increase.
c. The price of cigarettes would decrease.
d. The supply for cigarettes would become elastic.
When foreigners export goods to the United States
a. they reduce the ability of the U.S. to export products abroad.
b. they acquire the dollars that are necessary to purchase goods, services, and assets
from Americans.
c. they reduce the living standards of Americans.
d. they cause the dollar to depreciate.
The figure below illustrates the cost and revenue structure for a monopoly firm.
Figure 11-17
Refer to Figure 11-17. The demand curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
The “quantitative easing” policies of the Fed during, and following, the financial crisis
of 2008-2009, resulted in
a. rapid growth of both the money supply and nominal GDP.
b. rapid growth of the money supply and a substantial increase in the rate of inflation.
c. low interest rates and a sharp decline in the velocity of the money supply.
d. low interest rates and a sharp increase in the velocity of the money supply.
Which of the following would increase GDP?
a. You buy 100 shares of Wal-Mart stock.
b. Your car is destroyed by a fire, and you purchase a two-year-old car to replace it.
c. Your car is damaged by a fire, and you hire a mechanic to repair it.
d. Your car is damaged by a fire, and you reduce the number of hours you work to
repair the car yourself.
The three reasons why the aggregate demand curve slopes downward are
a. the international substitution effect, the net exports effect and the interest rate effect.
b. the interest rate effect, the short run effect and the free rider effect
c. the net exports effect, the real balance effect and the short run effect
d. the real balance effect, the international substitution effect and the interest rate effect.
An oligopolistic market
a. has a small number of rival firms, and each is large relative to the size of the market.
b. is characterized by firms that merely take the price that is determined by the forces of
supply and demand in the market.
c. has low entry barriers facing firms that may be interested in entering the market.
d. has a large number of firms that are small relative to the size of the market.
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
a. larger firms always have lower per-unit costs than smaller firms.
b. at low levels of output, AFC will be high, while at high levels of output, MC will be
high as the result of diminishing returns.
c. diminishing returns will be present when output is small, and high AFC will push
per-unit cost to high levels when output is large.
d. diseconomies of scale will be present at both small and large output rates.
“If a union is only able to organize a few of the firms in an industry, it is unlikely that
the union can substantially increase the wages of its members.” This statement is
a. false; unions tend to be stronger when they concentrate on only a few producers in an
industry.
b. false; the demand for unionized workers will be more inelastic if only a few firms in
the industry are unionized.
c. false; all unions can increase the wages of their members.
d. essentially correct.
An American investor purchasing a Japanese government bond
a. creates a demand for dollars and a supply of yen in the foreign exchange market.
b. creates a demand for yen and a supply of dollars in the foreign exchange market.
c. causes the yen to depreciate.
d. causes the dollar to appreciate.
In the long run, firms in many industries often experience falling average total costs as
a result of
a. gains through trade.
b. increasing marginal returns.
c. economies of scale.
d. lower fixed costs.
Which of the following interest rates will be least affected by a shift in monetary policy
that alters the money supply?
a. a three-month certificate of deposit
b. interest on checking accounts
c. a one-year bank loan
d. a thirty-year home mortgage